Home Depot vs. Lowe’s: a Brief Update

For years the image of this industry, held by experts as well as outsiders, was simply summed up by the plight of its two dominant national chains, Home Depot and Lowe’s. These two behemoths have ranked nos. 1 and 2 seemingly forever, or at least since the years shortly after Home Depot’s birth in 1976. Surely there is a lot more to this industry than can be seen through the trials and tribulations of its two most celebrated retailers but to many the industry is most easily addressed by these two Wall Street perennials.

For years Home Depot was the adventurous aggressor. Lowe’s was the cautious planner. As Home Depot experimented with additional new formats through the years, Lowe’s simply held the line and systematically expanded on its base.

Early during this period Home Depot decided to open a Farm & Home chain under its umbrella and surprised analysts by closing the chain down rather suddenly. After delivering impressive presentations on the viability of its fledgling test of traditional home center sized hardware stores, the company shocked admirers as it suddenly shuttered the concept. All the while Lowe’s continued on its gradual journey to expand its considerable footprint both in store size and market locations.

When Home Depot’s founders decided it was time to explore new personal opportunities, they turned the company over to a CEO from outside the company whose management style was even more aggressive. Plans called for a vast and costly expansion of its EXPO Design concept as the company went on an unprecedented spending spree, acquiring notably successful independent and regional pro dealers. To help afford these investments the company went on a frugality binge by cutting payroll in part by replacing knowledgeable industry veterans with bodies on store selling floors. The company also moved customer service call centers to India.

Meanwhile Lowe’s indicated it was as determined as ever to stay its course. This included well planned, methodical incursions into Canada and Mexico. While Home Depot had previously entered both countries largely through rapid acquisitions, Lowe’s remained cautious, waiting years before setting up its own exploratory teams respectively within each country to build Lowe’s-style operations from the ground up.

When the subprime crisis hit the fan, the Home Depot acquisitions and the company’s aspirations to be all things to all customers became too much to handle. Those responsible for the changes in the company’s basic makeup were unceremoniously purged. The pro dealer acquisitions were quickly sold off for far less than their original costs and several non-traditional store concepts including as its EXPO Design Centers were suddenly abandoned as new management sought to return the company to its once much admired original platform and core values.

At this point, though most of the industry suffered the faults of the national economy, Lowe’s seemed poised to avoid the degree and extent of the problems facing Home Depot. By maintaining its DIY roots Lowe’s didn’t face the catastrophe Home Depot experienced as mounting foreclosures and a glut of unsold new homes hit builders far more than any other industry segment and rendered Home Depot’s acquisitions almost as anchors on a sinking ship.

However Home Depot’s new management accepted its losses almost as aggressively as it had acquired them. Under a sure handed management style led by Francis Blake the company aggressively returned to its roots, eagerly hiring very qualified associates, a venture made easier by the totality of the recession and the difficulty of many professionals to find desirable and gainful employment.

All this leads us to the state of the battle between these two companies today. After experiencing a host of problems brought on by a few years of questionable management focus, Home Depot just announced a third quarter sales gain of 2.9% as the company posted a 4.2% comp-store sales increase. Even bigger growth was reported as net earnings showed a 13.0% increase. Here Mr. Blake attributed the third quarter successes as driven by strength in the company’s core categories while noting a surge in storm-related sales as well as strong operating performance. Clearly the company has successfully returned to its roots.

Meanwhile Lowe’s reported that net income for its recently ended quarter dropped 44% as store-closing charges undercut a slight increase in quarterly sales. Net earnings of $225 million were reported, compared with $404 million in the year-ago period. Clearly the picture for Lowe’s based on these numbers is hopeful at best as President and CEO Robert A. Niblock, indicated that the company’s recent performance did not meet expectations even considering recession based market conditions. He stated that Lowe’s is, “Making the changes necessary to right size the organization, improve speed to market and enhance the shopping experience.”

In an effort to improve profitability, Lowe’s recently shuttered 20 stores, announced that the company is reducing the rate of future openings and is restructuring its store and merchandising organizations. This as Home Depot announced that its board of directors declared a 16% increase in its quarterly dividend to 29 cents per share.

As if this news is not enough to worry Lowe’s Wall Street fans, as mentioned in this space late last year, Lowe’s announcements of its store closings were handled clumsily at best as workers in some cases were notified on a Saturday night not to return starting the very next morning. Press announcements were also awkward. These met with scorn from workers as well as customers. Politicians chimed in from many levels. Both the local and national press followed up on the questionable details and cable news expanded the intensity and life of the story.

What soon followed Lowe’s in the media caused even greater controversy, if that was possible. Bowing to pressure from the Florida Family Association, a conservative Christian group, Lowe’s decided to end its advertising campaign on the TLC show “All-American Muslim”. The cancellation announcement created a media stir that only served to fan its own flames. Several religious, ethnic, consumer and political demanded Lowe’s withdraw its cancellation while others backed Lowe’s decision. Ultimately Lowe’s decided that backing down a second time to reverse the decision would seem weak and waited for the storm to subside on its own. The company received over ten thousand hits on its Facebook page both supporting and denouncing its decision.

For the many who view this industry first through the trials of its two national retail powers, 2012 should prove interesting indeed. There is no telling where this economy will take us and this industry is currently affected more by economic turns than most. As Home Depot and Lowe’s are national in scope they lose the advantage that some independents and regionals have as they plot against specifically local turns. Lowe’s has traditionally been the sure and steady national presence of the industry. How times have recently changed.

Arthur has worked at Chain Store Guide for 20 years. He received a B.A. degree from City College of New York and attained a master’s degree in electronic communications from Brooklyn College. Please contact him if you have any questions or comments.